Module 6b: Defined Benefit
John works for an employer who has a "defined-benefit" pension plan. John may be eligible for a
benefit based on the number of years worked, average of his salary for the last 3-5 years, and a percentage that is stated in the plan.
In this type of plan, the number of years worked may need to be a certain number such as 10, 15
or 20. Or there may need to be a combination of years worked and employee's age. (Note: it is important to learn what the requirements are for your employer's plan.)
John plans to retire next year after working for the employer for 30 years. His average income
for the last 5 years was $45,000. John knows that his annual "benefit" will be 1.5% or 0.015 * the
number of years worked * his average annual income during the last 5 years of employment.
What will John's benefit be?
John's annual benefit will be 0.015 * 30 * 45000 = $20,250.
Module 6 - Module 6a | Module 6b | Module 6c | Module 6d | Module 6e